Contracts: verbal vs written

 

It’s an issue encountered by contract lawyers on an almost daily basis (well, this contract lawyer anyway). The all-too-familiar tale almost always starts with a person recounting how they’ve fallen out with their supplier, contractor or business partner, and asking what they can do. That's inevitably followed by "Oh, and we don’t have a written contract.”

In many cases, getting written contracts in place is often comparable to unpacking that final box when you’ve moved house. You’ll get round to those finishing touches to the spare bedroom at some point, just not today…

And it’s understandable. All new companies have to consider a multitude of different elements to their business: investment, personnel, development, sales and marketing. Contracts can be expensive, especially if multiple contracts are required; they are to be negotiated and are particularly complex. Often, the time and resources to deal with these important contractual matters are simply not available and they are put to one side, to be dealt with at a later date.

In many cases, a written contract will never actually be dusted down and scrutinised after signature. So is a verbal contract worth the paper it’s not written on?

In England, a contract, whether verbal or written, must follow some basic principles in order to be formed:

  1. There must be an offer by a party to enter into a contract on certain, specific terms.
  2. The offer must be accepted – with no variation of the terms of the offer – and then communicated (although certain actions can be considered acceptance). If there is a variation, then this becomes a counter offer, which itself must be accepted.
  3. There must (in most cases) be consideration, so something in exchange for what is being offered.
  4. There must be an intention to create legal relations. Without intention, there cannot be a contract.

Distinction - This is in contrast to an “invitation to treat”, which web companies have become particularly grateful for when, for example, offering television sets for £2.99 instead of £299! A product appearing on a website only amounts as an “invitation to treat” rather than an offer.

As mentioned above, certainty of terms is crucial to establishing a binding contract (whether it is verbal, written, or partly verbal and partly written). However, this requirement of certainty is where verbal contracts invariable encounter difficulties when a dispute between the parties has arisen, since those terms are very difficult to ascertain. It’s difficult, but not impossible.

In these circumstances, should a dispute ever reach the courts, the actions and the statements made by both parties would have to be examined in order to establish what was actually agreed. This could extend to looking at correspondence, (e-mails, letters etc) quotes and order forms between the parties to determine the terms. The parties’ actions after a verbal contract is formed can also be examined by the court, to assist in establishing the full extent of the terms agreed. In the event that none of the above is available, the dispute can inevitably become one party’s word against the other, which could turn on an individual’s character and credibility. 

That is not to say that a written contract will always be clearer than a verbal contract. A poorly drafted contract can often present as many difficulties in relation to ambiguity and certainty as a verbal contract can. Problems can also arise when there is a written contract, but for some reason, one or neither party has signed it. Businesses should be aware of the risk posed by beginning to perform their part of a contract before signature and the risk of an inference being made that the contract has been formed, despite the lack of signature.  

The aim of a well-drafted written contract is to minimise risk (besides keeping contractual lawyers in employment!). It looks to reduce the risk of ambiguity and ought to clearly set out each party’s rights and obligations. In turn, this hopefully minimises the risk of a dispute with the other party by being able to clearly identify express terms in the contract, and lowers the risk of that dispute escalating to dispute resolutions centres and litigation. Although the initial expenditure incurred in generating a written contract can be high, particularly for start ups, this is often insignificant when compared to the amount parties could be exposed to when disputing contract terms.

I think it might be time to finish off that spare bedroom...

Jean-Marc Pettigrew is a solicitor at Waterfront solicitors

PROMOTED VIDEO
Arts and Entertainment
Hayley Williams performs with Paramore in New York
musicParamore singer says 'Steal Your Girl' is itself stolen from a New Found Glory hit
Sport
Ronaldinho signs the t-shirt of a pitch invader
footballProof they are getting bolder
News
peopleStella McCartney apologises over controversial Instagram picture
News
William Hague
people... when he called Hague the county's greatest
Voices
voicesBy the man who has
News
More than 90 years of car history are coming to an end with the abolition of the paper car-tax disc
newsThis and other facts you never knew about the paper circle - completely obsolete today
Arts and Entertainment
Ed Sheeran performs at his Amazon Front Row event on Tuesday 30 September
musicHe spotted PM at private gig
Sport
Arsene Wenger tried to sign Eden Hazard
footballAfter 18 years with Arsenal, here are 18 things he has still never done as the Gunners' manager
News
Floyd
newsFloyd 'Creeky' Creekmore still performed regularly to raise money for local hospitals
Extras
indybestKeep extra warm this year with our 10 best bedspreads
News
people'I’d rather have Fred and Rose West quote my characters on childcare'
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
iJobs Job Widget
iJobs Student

PMLD Teacher

Competitive: Randstad Education Manchester: SEN Teacher urgently required for ...

SEN Teaching Assistant Runcorn

£50 per day: Randstad Education Cheshire: SEN Teaching Assistant EBD , Septemb...

KS1 & KS2 Teacher

£115 - £130 per day: Randstad Education Luton: We are looking for infants and...

Secondary Trained Teachers for the watford area

£120 - £130 per day: Randstad Education Luton: Qualified secondary teachers - ...

Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

Day In a Page

Ebola outbreak: The children orphaned by the virus – then rejected by surviving relatives over fear of infection

The children orphaned by Ebola...

... then rejected by surviving relatives over fear of infection
Pride: Are censors pandering to homophobia?

Are censors pandering to homophobia?

US film censors have ruled 'Pride' unfit for under-16s, though it contains no sex or violence
The magic of roundabouts

Lords of the rings

Just who are the Roundabout Appreciation Society?
Why do we like making lists?

Notes to self: Why do we like making lists?

Well it was good enough for Ancient Egyptians and Picasso...
Hong Kong protests: A good time to open a new restaurant?

A good time to open a new restaurant in Hong Kong?

As pro-democracy demonstrators hold firm, chef Rowley Leigh, who's in the city to open a new restaurant, says you couldn't hope to meet a nicer bunch
Paris Fashion Week: Karl Lagerfeld leads a feminist riot on 'Boulevard Chanel'

Paris Fashion Week

Lagerfeld leads a feminist riot on 'Boulevard Chanel'
Bruce Chatwin's Wales: One of the finest one-day walks in Britain

Simon Calder discovers Bruce Chatwin's Wales

One of the finest one-day walks you could hope for - in Britain
10 best children's nightwear

10 best children's nightwear

Make sure the kids stay cosy on cooler autumn nights in this selection of pjs, onesies and nighties
Manchester City vs Roma: Five things we learnt from City’s draw at the Etihad

Manchester City vs Roma

Five things we learnt from City’s Champions League draw at the Etihad
Martin Hardy: Mike Ashley must act now and end the Alan Pardew reign

Trouble on the Tyne

Ashley must act now and end Pardew's reign at Newcastle, says Martin Hardy
Isis is an hour from Baghdad, the Iraq army has little chance against it, and air strikes won't help

Isis an hour away from Baghdad -

and with no sign of Iraq army being able to make a successful counter-attack
Turner Prize 2014 is frustratingly timid

Turner Prize 2014 is frustratingly timid

The exhibition nods to rich and potentially brilliant ideas, but steps back
Last chance to see: Half the world’s animals have disappeared over the last 40 years

Last chance to see...

The Earth’s animal wildlife population has halved in 40 years
So here's why teenagers are always grumpy - and it's not what you think

Truth behind teens' grumpiness

Early school hours mess with their biological clocks
Why can no one stop hackers putting celebrities' private photos online?

Hacked photos: the third wave

Why can no one stop hackers putting celebrities' private photos online?